They Print Money—Here’s What They’re Buying

Don’t listen to anything I’m about to share with you.

Instead, listen to the people who approve the message of today’s dispatch, because what they’re doing right now, they haven’t done at this pace in almost 60 years. And that means this dispatch matters to your wealth.

The institutions that print money for a living, the world’s central banks, are buying gold at a pace not seen since 1967—a fact I have shared with you a few times in recent months. That was the last time buying at this scale hit the market, and it ended with a run on gold that collapsed the London Gold Pool the very next year.

That date matters because of what came next—a run on the stockpile of gold that America was using at the time to back every US dollar. That run, in turn, broke the system in 1968, and forced Tricky Dick Nixon to kill the gold standard in 1971.

It was either that or cut the extreme war and welfare spending that caused America’s burgeoning crisis… and Congress hasn’t yet made it to the part of the Dummies Guide to Running an Economy where you live within your financial means.

When Nixon closed the gold window for good, the dollar was suddenly backed by nothing but the “full faith and credit of the US government”—which has turned out to be as effective as “thoughts and prayers” after a tornado rips through some poor rural town.

Now, what you have to understand about 1967 is this: Central banks were not predicting some abstract future crisis. Central bankers all over the world were responding to what they were watching unfold in real time: the US printing and spending more money than America’s horde of gold could back.

Remember, the dollar was backed by gold at a price of $35 per ounce of gold. So countries could literally show up with pallets of cash and convert every 35 bucks into an ounce of gold held in Uncle Sam’s vaults.

The world’s central bankers pulled out their cocktail napkins and did some figurin’, and they realized there were way too many dollars for the amount of gold America had in reserve.

So, they got out before the music stopped.

They didn’t see a crisis coming. They saw one already happening—and they acted.

Fast forward to today. The World Gold Council recently surveyed 76 central banks—the largest sample in the survey’s nine-year history. And the numbers came back the most lopsided ever.
45% of central banks say they plan to add even more gold to their reserves over the next twelve months. The highest reading ever.
89% expect total central bank gold reserves, worldwide, to keep climbing this year.
84% call gold a long-term store of value.
Let’s stop right there…. a store of value? Against what?

Why would the people who print money for a living want a hard asset in their reserves?

Sort of like a pack of wild dogs deciding they need some feral cats in the mix.

I mean, gold is just an archaic rock with no yield… or so goes the dismissive line American central bankers have leaned on for decades.

Nobody in that survey says the words “US debt.”

But it’s hard not to notice that central banks are gobbling up gold at a torrid pace at this particular moment, when US debt is at record highs; when debt-repayment costs are now the #2 item in the budget (trailing only Social Security), and when America is printing vast amounts of dollars to cover spending.

Makes sense that the people who run the global monetary system are quietly hedging against the thing they won’t say out loud.

And there’s a more worrying number in the survey: 38% of central banks aren’t just planning to add gold, they’re funding their purchases by selling off other reserve assets to do it.

That’s money moving, today, out of something and into gold.

What is that “something?”

Well, as I noted in a recent dispatch, the European Central Bank last month reported that gold just passed Treasuries as the world’s number one reserve asset for the first time since the 1990s.

Maybe that gives us a hint at what central banks are selling to buy gold?

Certainly, gold’s massive price run has helped push gold to the head of the class. But that trend is also tied to central banks explicitly choosing to hold more gold and less of everything else—US debt included.

So when I tell you don’t listen to anything I say, but do listen to the people who approve this message—that’s exactly what I’m talking about.

Maybe I’m wrong about gold (I very much doubt that…). But central banks? Well, they’re acting on something they see in the world right now.

They’re not a group of gunslingers making trades and looking for quick profits. Gold pays no interest. It earns no dividends. It just sits in a vault and collects dust.

But its strength in a crisis is that no government can freeze it, devalue it, or print more of it. When those institutions that can create money seemingly out of thin air increasingly choose to own something they can’t create, it’s worth asking yourself why.

There’s a message in that for anyone paying attention.